Sell Retail Now! Broker Sees Shift In Sales Appeal
JLL Senior Managing Director Ryan West has a message for retail property owners.
"If you have a strip center, you don't want to hold long term. It is time to sell."
Institutional investors have nearly maxed out of their allocation of Houston's white-hot industrial market. With capital ready to play, the local retail market is a safer bet with higher yields, West said.
"We are probably as busy as we've ever been," said West, who has been in the commercial real estate industry for 20 years. He is one of the top producers in Houston, securing $433M for 1.27M SF in 2018, and just joined JLL's Capital Markets team when the company officially merged with HFF on July 1.
Investors are pivoting from industrial to retail because they can get better yield in retail deals in Houston, West said. The interest rates are down between 3.8% to 4.25% and some deals may also qualify for interest-only loans.
Confidence has improved from buyers and lenders, as successful developers and retailers are evolving with consumer expectations. The strength of the retail fundamentals is proof of that with the total vacancy at 5.4% in Houston, according to JLL. He doesn't expect that to fluctuate, especially since Houston is a high population growth market.
“It is a good time to be transacting no matter what side you are on,” West said.
Institutional investors prefer big buys across all property types. That can present a gap for the retail market as activity can slow when there are no big deals in the market.
Those considering the Houston market will find a number of small deals like neighborhood shopping centers and power centers but a dearth of major listings, though he expects that will change this year or next.
West said his team isn't closing as many headline deals as last year. In 2018, the former HFF Houston team sold three H-E-B-anchored shopping centers, the popular Heights Mercantile and a luxury boutique West Ave at Kirby Drive and Westheimer Road.
West notes a shift from institutional investors. Increasingly, they are considering neighborhood strip centers but staying away from power centers.
Those not considering power centers are missing the boat, he said. Sustainable retail centers are those where people do everyday activities like go to the nail salon, work out and grab a coffee.
“Look at your check credit bill," West said. "The retailers listed on there are the type of retail centers you should buy.”
Grocery-anchored retail is highly sought after, which drives up the price and reduces the yield. West said he received between 15 and 20 bids each for the H-E-B-anchored centers the team represented last year.
Over the next six months, West expects a steady flow of small deals. By the fourth quarter or early 2020, he expects more big deals to hit the market. Properties will range from mixed-use, specialty retail and power centers.
“If a buyer can find a lender, we are going to start seeing those trades,” West said. "As we expected, the market is pivoting back to retail because there is so much yield.”